Lehman's Departure is Huge

Lehman Brothers Small Business Finance just closed up shop. Lehman was the second largest subprime commercial lender in the country, and their departure is huge. I almost fell off my chair when I learned that they are servicing a portfolio of $200 billion in subprime commercial loans.

C-Loans.com and Lehman had a good relationship, and they closed on the order of 25 loans for us. Their credit underwriting was fairly reasonable. They made the riskier loans, but for the most part their borrowers will make their payments.

The problem that will eventually kill their investors, I predict, is bad appraisals. Bad commercial appraisals are the bane of any hard money lender's existence. Appraisers tend to fall in love with the property owners and often try to help them by stretching their appraisals. Unless a hard money lender is constantly on guard for this, these inflated appraisals often lead to immense losses.

If Lehman Brothers Small Business Finance had obtained one or two BPO's (Broker Professional Opinions) on every deal from a local commercial real estate broker to double-check the appraisal, they will end up being okay. But I don't think they did, so I predict that when this portfolio starts to unwind that they will discover they had a lot of overblown appraisals.

There are still some lenders actively seeking subprime commercial loans. You can apply to my own company, Blackburne & Brown, using this link. I will personally review your deal.